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Alibaba is spending $ 3.6 billion to buy a controlling stake in one of China’s top supermarket operators, while doubling grocery delivery, a key growth engine for the e-commerce group during the pandemic.
The investment in Sun Art Retail Group will raise Alibaba’s 36.2 percent stake to 72 percent. Alibaba will also make a blanket cash offer of up to HK $ 17 billion (US $ 2.2 billion) to the other shareholders of the supermarket chain.
Shares of Sun Art, which is listed in Hong Kong, rose 19 percent on Monday, while Alibaba’s shares rose 1 percent in Hong Kong.
Alibaba is buying the shares of France’s Auchan Retail International.
Sun Art is the second largest supermarket chain in China, with more than 480 stores across the country. The two companies have already partnered for grocery delivery, and Alibaba’s blue-clad couriers transport everything from toilet paper to frozen meatballs from Sun Art outlets to shoppers in just one hour.
Sun Art’s substantial physical presence has made the company a key partner for Taoxianda, Alibaba’s fledgling grocery delivery platform.
Last year, Sun Art was the first traditional Chinese grocer to make its online delivery business profitable, according to Bernstein Research.
This year, the Covid-19 pandemic helped lift the company’s online grocery operating profit margins to an estimated 10.5 percent in February, from about 2.5 percent for the full year in 2019, as the Shoppers increased the number of items they bought in each order, according to Melinda Hu at Bernstein. Sun Art’s net income increased 15.4 percent in the first half of the year over the same period in 2019.
Grocery and fresh produce delivery have become key revenue drivers for China’s e-commerce giants including Meituan, Pinduoduo, and JD.com, as shoppers avoid physical stores due to the coronavirus outbreak.
“The competition has also intensified,” Ms. Hu said. “Thanks to Covid, the online food sector as a whole has attracted a lot of capital and investment, and smaller players who would have otherwise been pushed out of the market have continued to survive.”
Daniel Zhang, CEO of Alibaba, said that as the pandemic accelerated the “digitization of consumer lifestyles,” the Sun Art deal would allow Alibaba to offer consumers a fully integrated experience.
The e-commerce company has been building its own line of delivery-optimized supermarkets known as Freshippo, combining physical outlets with an app. The increased stake in Sun Art will more than double the presence of Alibaba’s grocery stores, adding many stores in smaller cities in China where Freshippo has yet to open outlets.
“Alibaba’s core e-commerce business is under pressure; your profit hasn’t grown much this year, [and] this will help, ”said Li Chengdong of the Haitun e-commerce expert group.
In the second quarter of this year, sales from Alibaba’s business line, which includes Tmall Supermarket and Freshippo, grew 80% year-on-year, contributing 20% of the group’s total revenue and helping to offset moderate growth in your core e-commerce business.
Once the deal is closed, Alibaba will consolidate Sun Art’s finances into its own.
